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preferred stock, and notes. So that, when the road went into the hands of receivers because of certain legal difficulties, the first mortgage bondholders felt well protected. It became necessary, however, for them to form a protective committee to protest against the issuance of receivers' certificates to such an amount that the actual equity for the first mortgage seemed in great danger of being largely decreased, and the real security of the bonds seriously impaired. Two years had been spent by the protective committee in trying to defeat the action of the junior security holders, and although it had met with at least temporary success in procuring payment of past-due interest, the bondholders had had to pay out of their own pockets an assessment for the committee's services, and the market price of the bonds had become greatly depressed. It seemed likely, moreover, that the difficulty might come up again at any moment.

For the fourth illustration, the investor took the case of a drainage district bond. This was one of an issue authorized by statute in one of the Middle Western states, and the protection for the bondholders had been vouched for by eminent counsel. But it had been discovered later that there was a flaw in that part of the statute making provision for the taxing power, and the bond had defaulted and had been finally repudiated by the district, not at all because of any deficiency in intrinsic security but merely because of the legal technicality.

It must, of course, be emphasized, as this investor was careful to point out, that such cases as these are much too isolated to be weighty considerations in connection with the average bond offering. But they have an abundance of genuine significance for two reasons: First, because they illustrate very concretely the kind of hidden dangers for which the strong, conservative banking houses make it their business to hunt with skill and patience before offering their securities to the public, and against which they succeed, fortunately, in guarding their clients with a degree of effectiveness difficult to appreciate, even in the light of the vast extent of their investment transactions.

And second, because they demonstrate so clearly that the investor can obtain nothing like real protection in the long run unless he diversifies his holding of securities in such a way and to such an extent that, if any one or more goes wrong, he can depend upon the others.

In studying the various phases of the principle of diversification, the man who referred to the foregoing cases as demonstrating the necessity for its practical application had turned eventually to the field of mortgage investment. Continuing the story of his experiences, he said his interest in that type of securities had first been aroused through having noticed the statement repeatedly made by certain. houses in the farm mortgage business that no investor had ever suffered loss on any of their offerings.

In the light of his experience up to that time, he said, such a statement had at first appeared so surprising as to lead him to discredit the houses making it. But he had found upon investigation that there were a good many that could rightly lay claim to such a record-and for a reason which he ventured to say was, perhaps, not fully appreciated. appreciated. He explained, for example, that he had discovered this was not because farm mortgages did not go wrong in some cases, just as other investments; but rather because the unit of the farm mortgage was so small on the average that in cases of trouble the responsible houses were able to step in and themselves assume the "nursing" with little or no risk of loss.

The result was, as he had observed it, that investors who were clients of such houses were usually relieved of any mortgages that happened to default, and were not as a rule subjected to the experience of having actually to deal with embarrassed or procrastinating debtors.

It is undoubtedly due to the growing appreciation of this fact that mortgages are being included nowadays so much more often than formerly in almost every combination of securities by individual investors who seek, as they should, to carry out the idea of distribution of risks to its most effective limits.

THE

YOUR GOVERNMENT OF THE

UNITED STATES

THE NAVY DEPARTMENT

THE WORLD'S WORK publishes each month one or more editorial articles about the activities of the Federal Government. These articles are written by a member of the editorial staff in Washington who keeps in close and constant touch with the men and measures of which he writes.

The Washington Office (in the Munsey Building) will also answer readers' questions about the work of any department of the Government.

T

HE Navy Department is organized on a system of checks and balances. Before Secretary Meyer's time—that is, up to 1909 the department consisted of eight bureaus of equal precedence, the only coordinating head being the Secretary. In making decisions the latter was often unable to discriminate between good and bad advice, while at the same time unable himself to initiate constructive technical measures which concern the Navy as a whole. Since no bureau is charged with responsibility for the efficiency of the whole department none, accordingly, had a comprehensive vision, and the tendency was to build up eight small, semiindependent Navy Departments, all regarding each other apprehensively when not actually at loggerheads.

Until the incoming of the present Administration there had been eight of these semi-independent little kingdoms, but now that the Bureau of Equipment has been done away with seven remain, with selfevident jurisdictions as follows: Yards and Docks, Navigation, Ordnance, Construction and Repair, Steam Engineering, Supplies and Accounts, and Medicine and Surgery.

The chiefs of these bureaus are free to Issue orders concerning the work in their separate spheres provided only such work is not of a character to "alter the military characteristics of any ship." When such characteristics are affected the matter must be referred to the recently created Chief of Operations and by him brought to the attention of the Secretary.

Admiral Blue, who heads the Bureau of Navigation, has a good deal more under his charge than would appear from his title. For example, he looks after the upkeep and operation of the Naval Academy at Annapolis and the Naval War College at Newport; enlistments, assignments to duty, and discharge of all enlisted persons; and the operation of the radio service and the naval militia. If an officer wants to go on leave he has to make application therefor through the Bureau of Navigation, and every officer in the service gets the orders of the Secretary through the same source.

The Bureau of Supplies and Accounts corresponds to the Quartermaster Corps in the Army, and Paymaster-General Samuel McGowan is the General Aleshire of the Navy, having under his charge the purchase, storage, and issue of all supplies for the naval establishment. The other bureaus make requisitions, but General McGowan does most of the buying.

Under Secretary Daniels the department has recently been reorganized so as to do away with the four divisions. And with the divisions have passed away Mr. Meyer's four "Aides," although a portion of the former duties of the Aides for personnel and material is still perpetuated in the offices of the two captains serving under Admiral Benson, the Chief of Opera

This is more than a change in terminology: it is a change in system. All the bureaus are now directly under the Secretary or Acting Secretary in all matters pertaining to their respective bureau.

activities. But when it comes to a question affecting the typical material, the character of ships, or any matters affecting the strategic disposition or use of the Fleet, in whole or in part, then the single remaining division, that of Operations, reëstablished on an entirely new basis by an act of the last Congress, takes a directing and coördinating hand in the proceedings.

The creation of the Division of Operations "under the Chief of Naval Operations" constitutes the nearest approach the Navy has ever reached to its muchdesired General Staff. Admiral Benson is charged with responsibility for the efficiency of the Fleet and, acting in conjunction with the General Board, with the preparation of plans for its use. Next after Assistant Secretary Roosevelt, he is also clothed with administrative authority; when Mr. Daniels and his assistant are both away, Admiral Benson becomes Acting Secretary, this succession in office making him senior to all bureau chiefs and providing the way, for the first time, for a coördinating authority with professional knowledge and training, who is practically alone responsible to the Secretary for the efficiency of the Navy as a whole.

Secretary Daniels has interpreted the act of Congress creating the Board of Operations very liberally. Instead of placing restrictions upon its chief, which he might very well have done, he has vested him with many duties and responsibilities not specifically mentioned by Congress, but which are highly desirable for him to have. For example, the duties of the former Aide for Material, who directed the Bureaus of Ordnance, Construction and Repair, Steam Engineering, and Yards and Docks, have been transferred to the Chief of Naval Operations.

THE GENERAL BOARD

Superimposed on this present system of bureaus, Division of Operations, and Secretaryship, is the General Board, composed, by regulation, of the Admiral of the Navy, the Chief of Operations, the Director of Naval Intelligence, the president of the Naval War College, and "such additional officers as the Secretary of the Navy may designate."

Overlapping as it now does upon the proper functions of the Naval War College and the administrative capacity of the Division of Operations, it is not a necessary body. Serving upon it are three of the ablest officers in our service, all of them War College men, Captains Oliver, W. L. Rodgers, and Knapp.

The same character of service which affects the Departments of State and of War also pervades the adjoining corridors of the Navy Department. All three are keyed to the same slow movement. If the Chief of Operations or the Assistant Secretary, keen on his day's work, stays over until after four-thirty in the afternoon or arrives before nine-fifteen in the morning, he cannot get anything done outside of his own office. Similarly between one and two o'clock, no matter what is going on in the world the machinery of Departmental Government shuts down for lunch. When some energetic chief tries to keep his civilian employees overtime, they promptly ask for transfer to another department. This has actually happened several times, to the extent that it is difficult, at a critical period for the Navy Department to keep its employees on the job in response to an emergency.

Lately, responding perhaps to the greatly increased efficiency of the Naval War College at Newport, the General Board has been bestirring itself. Within the last six months, that is, since the appointment of the Chief of Operations, the reanimated Board has sent a confidential letter to every bureau in the department, stating in effect and in detail something like this: “In case of war with nation X- -you would have to do thus and so- -: provide definite supplies, accomplish definite results in a definite time and at a specific place." And, the case being thus stated, each bureau was called on to report back whether or not it could make good on this order and if not, just wherein it specifically fell short of the performance expected of it. The answers promptly provided by each bureau to the General Board, now in the Secretary's hands, form the basis of his recommendations to Congress.

Another departmental device for the direction of the Navy begun in this Admin

istration is the Advisory Council, a body of about a dozen men which meets with the Secretary once a week and is intended thus to bring together regularly, on an equal and informal footing, the Chief of Operations, representing the General Board, the Assistant Secretary, the seven bureau chiefs, the commanding officer of the Marine Corps (now for the first time recognized in general Navy direction), and the Judge-Advocate-General.

This potentially very useful body is intended to accomplish weekly the following things: To advise the Secretary; to outline officially and unofficially to the various heads of divisions the policy of the Government; to serve as an opportunity for the airing of all differences of opinion and conflicting interests in the service. Unquestionably Mr. Daniels has accomplished much in popularizing the Navy. Just recently he stopped the regular autumn manoeuvres off the Virginia capes to bring eight or nine vessels of the necessary light draught of less than 22 feet up the Potomac for the Grand Army reunion at Washington during the last week of September. In August, while the North Atlantic fleet was at target practice off Newport, the Secretary, hearing that a conference of governors from many states was being held in Boston, called off the shooting while he dispatched the entire Fleet, destroyers and all, around the Cape to show it to these important personages.

The Secretary, by his own peculiar methods, has also accomplished another result of a more obviously useful character. Previous Secretaries addressed letters to Senators and Congressmen beginning "Sir:" and wound up a stratified, formal letter with "Whitney," or "Long," or "Meyer," as the case might be, "Secretary of the Navy." Mr. Daniels and Mr. Roosevelt begin: "My dear Senator," and, using the first person all through a cordial document, wind up with, "Very sincerely yours, Josephus Daniels," or "Franklin D. Roosevelt."

And as a result of this affability Mr. Daniels has made himself persona grata at the other end of Pennsylvania Avenue. When Mr. Meyer went up to the Capitol, as he very often had to do, he was very apt

to get the same kind of formal and uncompromising reception as his written replies, merely following precedent, seemed to give to the average Congressional letter. When Mr. Daniels goes up to the Capitol he gets a warm hand and an open-minded hearing and unquestionably his democratic methods, whatever they may lack in dignity, have produced results. He has got more money out of Congress than either of his two immediate predecessors did and he has succeed in getting through Congress more constructive legislation than they.

In the old days before Secretary Meyer's time the Assistant Secretary had a definite sphere of usefulness. He looked after the Marine Corps, the Naval Militia, and the Navy Yard, and was generally expected to keep his hands off everything else. Mr. Daniels and his assistant conceived the latter's job differently. The Assistant Secretary now is literally an Assistant Secretary, capable of acting in his chief's absence. Mr. Roosevelt's big job is in keeping advised of all the various activities of the department with the exception of the matter of personnel. All considerations under the latter head, in conformity with long established usage in the service, go directly to the Secretary or await his home-coming.

One of the practical changes in the present administration of the department has been the matter of bidding on Navy contracts. The number of bidders, for example, has increased 26 per cent., during 1915, and the prices of naval commodities have decreased during the same time on an average of 4 or 5 per cent. Navy contracts have always been let by competition, but a great deal of bad business has been done in recent years in following out the custom, sometimes justified on the basis of speed, of letting contracts over the telephone. The new system requiring public advertisement is slower but it saves a lot of money, and at the same time avoids the piling up of dead stock due to occasional contracts let in excess of demand. During the last two years the value of dead stock in the Government Navy Yards has been decreased, by sale or adaptability to other use, from $15,000,000 to $5,000,000.

CONGRESSIONAL LEADERS AND OUR

PREPAREDNESS FOR WAR

MILITARY

WHO THE CHAIRMEN ARE OF THE COMMITTEES ON NAVAL AND
AFFAIRS IN THE HOUSE OF REPRESENTATIVES AND IN THE SENATE,
AND THEIR PROBABLE ATTITUDES ON THE SUBJECT OF NA-
TIONAL DEFENSE THAT WILL BE BROUGHT BEFORE
THE FORTHCOMING SESSION OF CONGRESS

T

BY

JAMES MIDDLETON

HE most important duty confronting Congress, at the forthcoming session, will be the reorganization of our military and naval defenses. This popular demand has reached a point where it has become almost a political issue. What will be the attitude of the Democratic majority on the matter of military preparedness? That Congress has neglected our Army and Navy chiefly in the search for pensions, river and harbor bills, public buildings, and other miscellaneous forms of "pork" is now generally understood; has the trend of public opinion during the last few months, and especially the international crisis in which we find ourselves, produced any change of heart?

Four men at Washington-two in the House and two in the Senate-assume a national importance in this connection. The chairmen of the military affairs and naval committees more than any other men can facilitate or impede progress in this direction. Mr. James Hay, of Virginia, chairman of the House Military Affairs Committee, Mr. Lemuel P. Padgett, chairman of the Naval Committee, and Messrs. George E. Chamberlain and Benjamin R. Tillman, who occupy the corresponding positions in the Senate, are the men to whom the Nation looks for military and naval reforms.

Unfortunately, those who, as chairmen of committees, have been intrusted with this responsibility, too frequently have little enthusiasm for it. Only the peculiarities of American politics could elevate to the

chairmanship of the House Committee on Military Affairs the very person who has most distinguished himself as an opponent of military preparedness. Mr. William J. Bryan as commander-in-chief of our Army and Miss Jane Addams as admiral of the Navy would be no more absurd than Mr. James Hay has been as the Congressional custodian of our military interest. Congressman Hay, who comes from Virginia, has fought the Army almost from the first day he arrived at Washington. Mr. Hay was a member of Congress during the Spanish War, and thus had excellent opportunities to observe the penalties of military unpreparedness. This experience, however, taught him nothing. In 1899, as a result of that lesson, a bill was introduced increasing the standing Army from 25,000 to 100,000 men. Mr. Hay led the opposition to this bill. "A more vicious piece of legislation," he said, referring to the proposed increase, "was never introduced into this House. It inaugurates a policy which will bring everlasting shame and ruin upon this great Republic." It was proposed, he said, merely as a protection to the corporate interests of the country-a scheme to put down exhibitions of the popular will, "to desecrate the ballot boxes and suppress liberty of speech and liberty of action among American citizens." That was sixteen years ago; the modest increase in our Army became the law and, for all the Virginian Congressman's direful prophecies, the Republic still endures. He fought increasing the Army from 25,000 to its present strength-actually about 80,000; in

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